Sun to fork out $1 billion for open-source firm MySQL

Sun Microsystems will plunk down $1 billion to buy MySQL, the maker of a popular open-source database. Sun said Wednesday that it will pay about $800 million in cash for MySQL’s privately held stock and will assume about $200 million worth of options. MySQL CEO Marten Mickos will join Sun’s senior executive team after the transaction closes.

The acquisition is a bold move for Sun, which has embraced open-source software and development practices in an effort to garner more revenue from its software business. Until now, it has sold support services for a competing open-source database, PostgreSQL. Company executives said they will continue to support PostgreSQL and continue to partner with database giant Oracle.

MySQL, founded in 1995, is one of the most successful open-source companies. It’s part of the popular combination of open-source development products referred to as LAMP, for Linux, Apache Web server, MySQL and the PHP development language, which is broadly used on the Internet and within companies. Mickos had previously said that the company intended to go public rather than be acquired.

Its business model is to give away the source code and its database for free and to charge customers an ongoing subscription fee for support and services. Speaking during a conference call, Sanford C. Bernstein analyst Toni Sacconaghi said he estimated MySQL’s revenue over the past year was in the $60-$70 million range.

In the call, Sun CEO and president Jonathan Schwartz called the deal the most important acquisition in the history of the company. Sun will gain access to MySQL’s large customer base and have the opportunity to sell hardware and addition software, he said. About 75 percent of MySQL installations run on hardware from other vendors than Sun. About 20 percent of them run Sun’s Solaris operating system, although the majority of MySQL databases run on Linux, executives said.

“This is really about one thing: reaffirming Sun’s position at the center of the Web,” Schwartz said. “We view ourselves as a platform for the Web economy and we certainly believe and can demonstrate that we have the hottest products and platforms.” In his blog, Sun CEO Jonathan Schwartz said that Sun will begin offering support services to customers of MySQL before the deal closes later this year.

He said that Sun intends to provide the sort of support services that large corporations demand. MySQL is a “part of every Web company’s infrastructure, to be sure. And though many of the more traditional companies use MySQL (from auto companies to financial institutions to banks and retailers), many have been waiting for a Fortune 500 vendor willing to step up, to provide mission critical global support,” Schwartz said.

Schwartz also outlined a number of areas of technical integration designed to optimize MySQL’s flagship database–as well as MySQL’s Falcon storage engine–on Sun’s Solaris operating systems and servers. The size of the acquisition, at $1 billion, reflects the indelible mark that the open-source business model–in which companies give away source code and charge for services or high-end products–has left on the software business.

“I think that open source is becoming the business model that enterprises want to pursue…and there are legions of software engineers graduating from college who won’t use anything else,” said Kevin Harvey, general partner at Benchmark Capital and chairman of MySQL’s board. “Open source and software-as-a-service are the only two viable software business models going forward.” There are plenty of open-source start-ups, but few that have reached the size and influence of MySQL. Most of the successful open-source companies have been acquired.

Novell bought SUSE Linux four years ago for about $210 million. JBoss was acquired for more than $400 million by Red Hat in 2006. And last year, Citrix paid $500 million for XenSource, a virtualization software provider, and Yahoo paid $350 million for Zimbra. “This is a great move for Sun, and answers the question of ‘SunDB’ that Scott McNealy posed several years ago,” said The 451 Group analyst Raven Zachary. However, the acquisition also comes with some potential difficulties. “This raises a whole bunch of issues concerning Sun’s close ties to Oracle, as well as their investment in PostgreSQL,” Zachary said.

He believes other potential suitors include Red Hat, Sybase, Hewlett-Packard, and Oracle. Indeed, Mickos confirmed in 2006 that Oracle had attempted to acquire MySQL. MySQL, which is based in Cupertino, Calif., and Uppsala, Sweden, has about 400 employees. Investors include Benchmark Capital, Index Ventures, IVP, Intel, SAP, Red Hat. The deal is expected to close near the tail of Sun’s fiscal third quarter, which ends in late March, or early in its fourth quarter.